Controlling prescription drug costs has emerged as one of the few policy areas where Donald Trump aligns with progressive Democrats, reflecting broad public dissatisfaction. A March 2026 Kaiser Family Foundation poll revealed that 72% of American adults believe current government oversight of drug pricing remains insufficient. While Trump’s initial attempt during his first term to implement “most favored nation” (MFN) pricing faced legal challenges, the administration announced in September that it had secured such agreements with 26 pharmaceutical manufacturers, linking certain U.S. drug prices to international benchmarks.
The administration has simultaneously exerted pressure on wealthy nations, particularly European countries, to increase their drug expenditures. Trump framed the negotiations as a trade-related issue, warning that tariffs could be imposed if European nations resisted price adjustments. During a September press briefing about Medicaid drug pricing, he stated, “We went way down and they went a little bit up,” contrasting U.S. and foreign pricing trends. He added, “If they didn’t agree, we were going to use tariffs to make sure they did it.” Economists now question whether these international agreements will boost pharmaceutical companies’ global revenue streams and, consequently, accelerate the development of new medications.
Effects on Drug Market Introductions
Some pharmaceutical companies have responded by delaying European market entries or insisting on pricing equivalent to U.S. levels to safeguard domestic profits. Insmed, for example, postponed the German launch of its Brinsupri treatment for lung disease in February, despite European regulatory approval granted the previous November, citing MFN pricing uncertainties. Across the industry, new drug launches in the European Union dropped by approximately 35% during the 10 months following Trump‘s May 2025 executive order compared to the prior 10-month period, according to a GlobalData analysis that Reuters highlighted.
Other firms have proposed charging higher launch prices abroad. Bristol Myers Squibb announced plans to introduce its schizophrenia medication Cobenfy in the United Kingdom at the same list price as in the U.S., with company executives stating they would withdraw the drug if UK health authorities failed to recognize its clinical value. Despite these international pricing strategies, U.S. list prices for many drugs continued rising, though reductions on several widely used medications partially offset these increases within Medicaid programs.
Financial Incentives and Research Investment
Pharmaceutical research and development spending has historically remained stable over time. When revenue increases occur, they can drive similar growth in new drug development. A 2000 study in the Journal of Evolutionary Economics by Duke economists Henry Grabowski and John Vernon found that expected returns and cash flow influenced how much companies spent on R&D relative to sales. Higher anticipated earnings make additional research projects financially attractive, while cash flow helps finance the work.
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A 2004 study in the Quarterly Journal of Economics by Daron Acemoglu and Joshua Linn examined whether larger markets produce more medicines. They found that drug categories with growing potential markets attracted more new drugs, including new molecular entities. Later estimates, such as a 2015 paper in the RAND Journal of Economics by Pierre Dubois, Olivier de Mouzon, Fiona Scott-Morton, and Paul Seabright, put the elasticity of new chemical entities reaching the market with respect to expected market size at 0.23. This implies that a 10% increase in expected revenue leads to roughly 2.3% more new chemical entities.
Using this framework, a hypothetical scenario illustrates potential outcomes: if revenue from new medicines in Europe’s five largest markets increased by 25% while other regions’ sales remained unchanged, global pharmaceutical revenue would rise by $3.90 for every $100 in original sales. Applying the 2015 study’s elasticity estimate (0.23) suggests this revenue boost could result in about 0.9% more new chemical entities than would otherwise emerge. For a baseline of 50 annual new drug approvals, this translates to roughly 0.45 additional drugs per year—or one new medication approximately every two years—assuming the effect fully materializes.
New drug research typically requires a decade or more before reaching patients, meaning existing projects may respond more quickly than entirely new initiatives. A roughly 5.3% fall in U.S. revenue from the same new-medicine base would remove that $3.90 gain. In September, Trump announced that all 50 states would participate in an MFN pricing program covering select medications. Last December, Britain agreed to invest 25% more in new medicines, partly by raising the cost-effectiveness threshold NICE uses to recommend them for NHS use.
The 2015 study estimated that approximately $2.5 billion in additional revenue per new chemical entity would be required to incentivize innovation, based on historical sales data. This figure measures the market reward needed to induce an additional innovation, reflecting rising development and regulatory costs and increasingly difficult scientific opportunities. The authors described their estimate as a back-of-envelope scenario, not a forecast, and noted that drug output grows more slowly than expected revenue.
